“Big numbers are pretty, but not if they’re not real.”
-Dr. Kelly

What Does Collection Ratio Tell You?

For physical therapists and chiropractors, collection ratio is an important metric for determining prosperity of your practice. In today’s inflation environment, it’s more important than ever! Patients are paying more for care, and insurance companies are looking for any excuse to deny claims. In fact, claim denials have risen 11% nationwide and are still on the rise.

Calculating collection ratio is critical, because you need to be able to cut down on troublesome areas that may be costing your practice money. Once you know how to calculate collection ratio, and red flags to watch out for in the process, you can take actionable steps to improve your collection rate and thus your overall income.

What is the average collection ratio for a collection department?
The goal of any good collection department is to have a collection ratio of 95% or better. Anything lower than 95% means your practice is losing revenue. There are several factors that could be contributing to this, but the most common are:

  • Use of outdated technology
  • Lack of expertise in appeals
  • Untrained or uneducated staff
  • Backlog of denials

In case you’re wondering why the collection goal is not 100%, it’s because 100% is generally not attainable, anyway not if you’re tracking your collection ratio and collecting properly.  Though you may strive for perfection, there will always be that one patient that refuses to pay or that one claim that keeps denying, and so on.  

Typically, your collection ratio is based on the following:

(Total Collected + Total Write-Offs) ÷ Total Charges Billed

Total Charges. This is the total amount of services entered and billed out from your software.  This number generally speaks for itself.

Total Collected. This number represents the total amount paid by both the payer and the patient.  

Total Write-offs. Write-offs represent any amounts that are written off in your system for any reason.

Some of the common things we see that throw off the accuracy of your collection ratio are the following:

  1. You track your collection ratio week-by-week or month-by-month, but don’t look at the bigger picture.  It’s easy to cherry pick your high months or low months to support whatever argument you are making at the time.  However, to get an accurate picture of your collection ratio, you should be tracking it from month-to-month and looking at your overall average from year-to-year.  One year generally gives you an honest representation of your practice statistics.  
  2. Over-collecting and/or pre-collecting from patients.  When estimating and collecting from patients in advance it’s important to follow-up and be sure that what you are collecting is accurate.  If you are over-collecting, you have an obligation to refund them their credit.  Many clinics don’t track their patient credits which will skew your collection stats by including money that isn’t yours to keep.  If you are pre-collecting in large amounts, it can also throw off your collection ratio if you are not tracking your overall average from year-to-year.
  3. Write-offs are the #1 thing to commonly throw a clinic’s stats off.  If you are only tracking billed, collected & write-offs to determine your collection ratio it’s easy to miss things that are falling through the cracks.

For example:  You bill $50,000, you collect $20,000 and write-off $30,000.  Technically your collection ratio is 100%.  But, is it?

  • What if $5000 of your write-offs are due to no authorization?  Should that be a standard write-off?  I would hope not.  It should be an avoidable write-off that indicates an internal tracking or process issue.
  • What if $7000 of your write-offs are due to denials that were written off but could have been fixed and re-billed?  For example, your therapies are not billing with the correct modifier and are denying.  Instead of catching the denial and fixing it, it’s being written off as part of the electronic payment posting process and not being followed up on.
  • What if you are not sending out patient statements on a regular basis but are instead writing off patient balances?  

These are a few simple examples we see often that make your collection ratio appear to be higher than it is, because you are writing off more than you should be.  

To Help Avoid a False Collection Ratio:

  1. Track multiple collection averages. By tracking your overall collection ratio (above), your payer payments vs. total charges billed, and your patient payments vs. total charges billed, this allows you to see and track your averages in all key areas of your collections.  As noted above, these numbers should be tracked from month-to-month and averaged from year-to-year.
  2. Track multiple write-off categories.  The key here is to not go crazy and over complicate your system, but to have a few key write-off categories that you can separate out & track.  A few examples are provider reductions, no authorization, doctor discretionary, and settlement agreements. 

Most software programs easily allow for set up and tracking of all these categories with the option to print reports monthly that you can then track and review to determine what your real collection ratio is.

Action Steps to Improve your Collection Ratio:

  1. Set a goal, and be realistic. You know your collection ratio. If it’s currently at 80%, to set a goal of 97% is a huge leap. Small, incremental steps to reach that eventual goal would be more realistic. Work on a few percentage points at a time. Share your goals with the team, and set milestones along the way, so everyone can aim for that number.
  2. Use the right software. Taking advantage of the latest technology means you can automate several aspects of the collections process. We highly recommend either Eclipse or ChiroTouch.
  3. Train your staff. Make sure you have an established process with a high success rate, then invest in proper training for your employees to set them up for success. Then, continue that education piece. Make sure your staff stays on top of the latest updates and changes to coding and billing.

Although every business owner ideally wants a 95%+ ratio, your actual percentage will depend on your business model, your customers, your employees, your location, and the economy. Once you’ve determined your actual percentage, you can then take steps to improve it.

Want to learn more you can do to improve your collections? Click here to listen to our podcast, 3 Keys to Successful Insurance Billing!

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